Consider the following scenario in relation to your Notary, Loan Signing Agent and Marriage officiant practice in Hawaii and determine the opportunity cost of leaving your job to become an entrepreneur. You currently make $90,000 per year at your job plus benefits (equal to 30% of your salary). On January 1 of the New Year, you start your own business. After the first year, your accountant informs you that you made $45,000 and out of that you paid $6,000 for health insurance. What was your opportunity cost? If your opportunity cost is higher than you would like, how can you lower your opportunity cost in the future years?

Consider the following scenario in relation to your Notary, Loan Signing Agent and Marriage officiant practice in Hawaii and determine the opportunity cost of leaving your job to become an entrepreneur. You currently make $90,000 per year at your job plus benefits (equal to 30% of your salary). On January 1 of the New Year, you start your own business. After the first year, your accountant informs you that you made $45,000 and out of that you paid $6,000 for health insurance. What was your opportunity cost? If your opportunity cost is higher than you would like, how can you lower your opportunity cost in the future years?

CONCEPTS IN FED.TAX.,2020-W/ACCESS

20th Edition

ISBN:9780357110362

Author:Murphy

Publisher:Murphy

Chapter6: Business Expenses

Section: Chapter Questions

Problem 38P

See similar textbooks

Similar questions

Answer the following problems and explain it step by step: 1. A man who is 30 years old at the start of the year, is considering getting an MFM degree. He currently earns $40,000 per year and expects to continue earning that amount for the rest of his working life (until age 65). He will give up his income for two years and will pay $20,000 per year in tuition, if he attends business school. In exchange, he expects a raise in his salary after completing his MFM. Assume that the post-graduation salary grows at a 5% annual rate and that the discount rate is 8%. What is the minimum expected starting salary after graduation for him that makes attending business school a positive-NPV investment? (Assuming that all cash flows happen at the end of each year.) 2. Bob and Rose are both 62 years old and plan to retire in 3 years. They will receive $5,000 per month after taxes from pension plans and $1,000 per month after taxes from Social Security after retirement. Regrettably, their living…
The median annual income for someone with an Associates Degree is $31,936. The median annual income for someone with a Bachelor's Degree is $45,221. Suppose you have an associate's degree. If you quit your job and go back to school to study two years for a bachelor's degree, it will cost you $55,000 in tuition and fees plus approximately $64,000 in lost earnings. After graduation, how long will it take you to earn back that money?
You have been hired as a benefit consultant by Jean Honore, the owner of Pina Angels. She wants to establish a retirement plan for herself and her three employees. Jean has provided the following information. The retirement plan is to be based upon annual salary for the last year before retirement and is to provide 50% of Jean's last-year annual salary and 40% of the last-year annual salary for each employee. The plan will make annual payments at the beginning of each year for 20 years from the date of retirement. Jean wishes to fund the plan by making 15 annual deposits beginning January 1, 2025. Invested funds will earn 11% compounded annually. Information about plan participants as of January 1, 2025, is as follows. Jean Honore, owner: Current annual salary of $51,900; estimated retirement date January 1, 2050. Colin Davis, flower arranger: Current annual salary of $37,230; estimated retirement date January 1, 2055. Anita Baker, sales clerk: Current annual salary of $19,700;…
Suppose you have a job that pays you $15,000 a year. You receive a credit application in the mail stating that you have been pre-approved for $3,000 in credit, but that you must make at least $18,000 a year to receive the card. What should you do?
Allison is contemplating a job offer with an advertising agency where she will make $54 000 in her first year of employment. Alternatively, Allison can begin to work in her father's business where she will earn an annual salary of $38 000. If Allison decides to work with her father, the opportunity cost would be?
A man who is 30 years old at the start of the year, is considering getting an MFM degree. He currently earns $40,000 per year and expects to continue earning that amount for the rest of his working life (until age 65). He will give up his income for two years and will pay $20,000 per year in tuition, if he attends business school. In exchange, he expects a raise in his salary after completing his MFM. Assume that the post-graduation salary grows at a 5% annual rate and that the discount rate is 8%. What is the minimum expected starting salary after graduation for him that makes attending business school a positive-NPV investment? (Assuming that all cash flows happen at the end of each year.) Use Time Value of Money calculations.
You have been hired as a benefit consultant by Jean Honore, the owner of Sweet Angels. She wants to establish a retirement plan for herself and her three employees. Jean has provided the following information. The retirement plan is to be based upon annual salary for the last year before retirement and is to provide 50% of Jean's last-year annual salary and 40% of the last-year annual salary for each employee. The plan will make annual payments at the beginning of each year for 20 years from the date of retirement. Jean wishes to fund the plan by making 15 annual deposits beginning January 1, 2025. Invested funds will earn 11% compounded annually. Information about plan participants as of January 1, 2025, is as follows. Jean Honore, owner: Current annual salary of $49,990; estimated retirement date January 1, 2050. Colin Davis, flower arranger: Current annual salary of $37.190; estimated retirement date January 1, 2055. Anita Baker, sales clerk: Current annual salary of $20,900;…
Harika has just graduated from the University with a BBA and must decide whether to start working now or to get an MBA. In either case, she intends to retire 20 years from today. If she goes to work now, she can expect a salary of INR 5,00,000 per year for each of the next 20 years. An MBA requires an expenditure/fees of INR 6,00,000 per year for each of the next two years, and Harika will start working immediately after getting her MBA. If she gets an MBA, her salary will be a constant INR 10,00,000 per year. Her discount rate for valuing cash flows is 7% per year. Assume that cash inflows (salary amount) occur at the end of the year, while the cash outflows (MBA fees) occur at the beginning of the year. Based on the above, what should be her decision whether to do an MBA or start working now? You can ignore taxes
Jenny Jenks has researched the financial pros and cons of entering into a 1-year MBA program at her state university. The tuition and needed books for a master's program will have an upfront cost of $51,000. If she enrolls in an MBA program, Jenny will quit her current job, which pays $50,000 per year after taxes (for simplicity, treat any lost earnings as part of the upfront cost). On average, a person with an MBA degree earns an extra $21,000 per year (after taxes) over a business career of 39 years. Jenny believes that her opportunity cost of capital is 5.3%. Given herestimates, find the net present value (NPV) of entering this MBA program. Are the benefits of further education worth the associated costs? The net present value (NPV) of entering this MBA program is Are the benefits of further education worth the associated costs?
Melissa is starting a savings for the initial capital to start a jewelry company right after graduation for 3 years. Her job base salary after graduating is expected to be $85,000 paid through equal payments at the end of every month throughout the year. She assumes a 7% increase in annual salary each year. Melissa expects to pay $1,800 monthly rent for her apartment and an extra $1,500 per month to cover other living expenses and she plans to save the rest. As her salary grows, she is plans to move to a nicer place and lifestyle. The expected rent increase is 5% every year and the expected increase in other expenses is 10%. She plans to keep this constant pattern of expenses and income. Assume a 5% nominal interest rate per year compounded monthly.1. Draw the Cash Flow Diagram2. How much money will she have at the end of year 3?3. If Melissa knows that she needs only $100,000 to start her company, how many months it takes until he saves up this amount with the current saving…
Maria Turner just graduated from college with a degree in accounting. She planned to enroll immediately in the master's program at her university but has been offered a lucrative job at a well-known company. The job is exactly what Maria hoped to find after obtaining her graduate degree. In anticipation of master's program classes, Maria already spent $450 to apply for the program. Tuition is $8,000 per year, and the program will take two years to complete. Maria's expected salary after completing the master's program is approximately $60,000. If she pursues the master's degree, Maria would stay in her current home that is near the campus and costs $600 per month in rent. She also would remain at her current job that pays $25,000 per year. Additionally, Maria's immediate family is nearby. She spends considerable time with family and friends, especially during the holidays. This would not be possible if she accepts the job offer because of the distance from her new location. The job…
Maria Turner just graduated from college with a degree in accounting. She planned to enroll immediately in the master’s program at her university but has been offered a lucrative job at a well-known company. The job is exactly what Maria hoped to find after obtaining her graduate degree. In anticipation of master’s program classes, Maria already spent $450 to apply for the program. Tuition is $8,000 per year, and the program will take two years to complete. Maria’s expected salary after completing the master’s program is approximately $60,000. If she pursues the master’s degree, Maria would stay in her current home that is near the campus and costs $600 per month in rent. She also would remain at her current job that pays $25,000 per year. Additionally, Maria’s immediate family is nearby. She spends considerable time with family and friends, especially during the holidays. This would not be possible if she accepts the job offer because of the distance from her new location. The job…